Hopes have receded in the past three weeks for a steady recovery of South Africa’s fragile economy with the downgrade earlier this month of the country’s credit rating to junk status. The immediate trigger was the move on March 30 by South African President Jacob Zuma to reshuffle the leadership at 10 ministries. That purge ejected finance minister Pravin Gordhan, who was widely seen as instrumental in pushing reforms on several fronts including revitalizing the private sector and helping create jobs. More significantly, he was credited with measures to stanch corruption in government.
“The executive changes initiated by President Zuma have put at risk fiscal and growth outcomes,” S&P said when it downgraded the country on April 3. Four days later, Fitch did the same, and said the removal of Gordhan and his deputy Mcebisi Jonas “is likely to result in a change in the direction of economic policy.” Rating agency Moody’s has placed the country on a review for a downgrade, and pointed to unfinished work such as reforms to boost private sector participation in the mining sector, and “in encouraging a more even distribution of wealth.”
Malusi Gigaba, South Africa’s finance minister who replaced Gordhan, plans to meet with Moody’s officials in New York City later this week and persuade the agency to avoid downgrading the country’s credit rating, according to South African news site Times Live. Gigaba will be in New York City for meetings this weekend with the World Bank and the International Monetary Fund.
“Gordhan was seen as a bulwark against corruption and a series of government moves which might have enriched Zuma and his allies,” said Jeffrey Herbst, president and CEO of the Newseum and co-author of the book How South Africa Works and a forthcoming book titled Making Africa Work: A Handbook for Economic Success. Gordhan opposed many of the Zuma government’s actions “which didn’t make much sense for the country, including the purchase of several Russian nuclear power plants,” he noted.
The South African economy has been growing at less than 1% annually, but under Gordhan, “it had dug in and was consolidating a little bit in quite an impressive way,” said Murray Leibbrandt, a professor at the University of Cape Town’s School of Economics and director of the Southern African Labour and Development Research Unit. “The government was talking to business … about making things work collectively.”
“The major victims of Zuma’s policies are poor Africans.” –Jeffrey Herbst
Herbst and Leibbrandt discussed South Africa’s political and economic uncertainties on the Knowledge@Wharton show on Wharton Business Radio on SiriusXM channel 111. (Listen to the podcast at the top of this page.)
A ‘Credible Path’
According to Leibbrandt, sacking Gordhan was Zuma’s worst move. “Gordhan was making the right friendly noises in the sense that they were on a joint mission to keep the economy…